View more on these topics

Grape expectations

Investing in wine and forestry has increased in popularity as investors seek to diversify their portfolios, says Helen Pow.

At this festive time of year, when mulled wine is being guzzled by the barrel-load and pine forests are being chopped so Santa can put presents under the Christmas tree for the good little boys and girls of Britain, investing in alternative asset classes, such as wine and forestry, seems a merry option.

As investors seek out newer and more diverse areas to invest in the popularity of both wine and forestry investment has shot up in the past couple of years. Some people are allocating up to 10 per cent of their portfolios in these alternative asset classes to achieve diversification.

A major reason wine and forestry are popular diversification tools is the fact they are very attractively taxed – in fact, they are not taxed at all. Wine is exempt from capital gains tax because it is considered a wasting asset. It also does not derive an income so it is not subject to income tax and because it is generally stored in temperature-controlled bonded warehouses, there is no VAT payable either.

Forestry is also free of capital gains tax and income tax but FIM Services spokesman Hugh Humfrey says the inheritance tax advantage of this asset class is the main reason investors are choosing trees.

He says: “Once you own a commercial forest for two years you are exempt from IHT under the business property relief provision. This is the main driver for a private investor at the moment.”

Humfrey adds that client interest in forestry invest-ment has risen in line with concerns about IHT generally. Rising house prices have pushed many people over the £285,000 threshold and people have sat up and taken notice.

The relative lack of correlation to the stockmarket is also attractive, as is the fact that both wine and forestry investments are much more interesting topic to discuss around the turkey, Yorkshire pud and gravy-laden Christmas table than property prices or stocks and shares. And this is all before the cash register dings.

Specialist wine investment manager The Fine Wine Fund is bullish on the investment prospects for wine. Partner Miles Davis says: “There are very few circumstances when prices for wine would go down. Wines have been returning 14 per cent since the early 1990s.”

But forestry offers more conservative returns. Humfrey says 4 per cent per annum tax free is a good effort from this low risk investment.

When taxable and non-taxable Sipps investments were being debated around A-Day, wine was one of the “exotic” investments considered. Chancellor Brown, however, bottled out of the idea but Premier Cru sales director Gavin Saffer says the hype promoted the asset class immeasurably.

He says: “A lot of people thought wine would be included in Sipps and this hype made people aware that investing in wine was a legitimate investment alternative. It brought wine into the limelight.”

Half of Premier Cru’s business now comes from advisers. Saffer says that before Brown announced that wine would be taxable as a Sipps investment the company was working with 70 IFAs but since the Chancellor’s statement, Premier Cru has 350 IFAs who refer it business.

Ayot Mead Wealth Management investment specialist Karl Osmond says wine investments make up about 3 per cent of his business but, based on their success, he is looking to make that 10 per cent.

He says: “It is an alternative to other assets and acts as a cushion. We pitch it as a relatively non-correlated asset but because it is more exciting and has a bit of mystery about it, it basically sells itself.”

According to Osmond, his typical client who diversifies with wine is aged over 40, top-heavy in cash, a higher-bracket taxpayer, investment savvy and educated as to why wine is a good investment.

Davis says a huge knowledge of wine is not essential. “Clients are not necessarily wine lovers. It is more of a hobby for people with a certain degree of wine knowledge. The attraction is a combination of the scarcity value of fine wines and the demand for it – supply disappears as people are drinking it. There is a huge demand from established markets of Europe and America but there is new demand at the moment from China, Hong Kong and Russia who are buying it to drink. The demand out of Asia is leading the way at the moment.”

But Hargreaves Lansdown head of research Mark Dampier says wine and forestry, like all assets, will fall if the market dives because people will not have the money to buy them.

Davis admits: “There is correlation but there is a delayed effect. If Wall Street crashes you will notice in the wine investment industry a month or two later. If the stock market were to crash people would not sell their house but would probably sell their wine and art.”

But Dampier says the major drawback with these kinds of alternative asset classes is that the industry is not regulated by the FSA.

He says: “A lot of alternative assets tend to be unregulated investments so advisers are a little bit nervous and so are consumers. I think you would have to go to a very specialised adviser as most IFAs would not touch wine. The IFA’s point of view is that it is a business risk. Wine could be half a per cent of your business but 90 per cent of the risk and IFAs are worried about losing their reputations. An adviser is under a duty of care to their client and if you are advising someone it is up to you to understand the product. Most IFAs do not know enough about wine.”

Osmond admits wine is a more high-risk investment but he does not believe the fact it is not regulated deters customers and IFAs need to wake up to new and innovative investment alternatives.

He says: “IFAs need to learn about asset allocation and consumer risk. If you diversify correctly it is not a gamble or a risk as it is no different to looking at equity. We need to learn and embrace these new alternative investments. Younger advisers are more open to new investments and the old boys see this as a threat.”

As you sit down to enjoy a glass of wine around the tree this Christmas, just think, next year you could be enjoying the same scene – only with a tree from your own forest and a bottle of fine wine from your own cellar.


Distribution Tech wins Lloyds TSB deal

Distribution Technology has won the contract to provide the point of sale software used by Lloyds TSB Private Banking advisers in their consultations with high-net-worth clients.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm